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Flipkart cuts burn to half that of rival Amazon

E-commerce companies in India have learnt their lesson of burning cash on discounts to get more customers

Alnoor Peermohamed & Raghu Krishnan  |  Bengaluru 

flipkart

Despite raising nearly $4 billion from investors such as Softbank and Tencent last year, India’s leading is keeping a tight control over its purse strings as it looks to build a sustainable business.

The company has been able to cut its burn to just $17-18 million every month as measures to squeeze sellers for more margins and cut in customer discounts have kicked in, people familiar with the development said. It is also focusing on introducing private labels that yield higher margins and offset losses from other business units, they said. This is happening amid Flipkart’s claims that it has kickstarted its growth machine, which was previously fueled by burning cash.

has been able to reign in its cash burn, but rival continues to burn between $35-40 million every month in India, people who did not want to be named said. While discounting is down, the cash is being spent on initiatives such as Prime, which offers expensive one and two-day delivery services for free. did not respond to queries sent by Business Standard.

“Our investment in India is along planned lines, and is buoyed by the customer response we have received since our launch more than four years ago. As India’s largest and fastest growing e-commerce player, and with a long-term commitment to make ecommerce a habit for Indian customers, we will continue to invest in the necessary technology and infrastructure to grow the entire ecosystem,” said an spokesperson.

“We will also invest behind India-first initiatives as well as completely new offerings like Echo, Pay, Fire TV, Prime and Prime Video,” she added.

Flipkart’s focus on sustainability is largely coming from Tiger Global’s mandate to Kalyan Krishnamurthy to bring surging costs under control. Over the past year, Krishnamurthy has done away with the company’s bloated top management team, has worked to cut more lucrative deals with brands and has in general exercised restraint in offering deals to customers. Even during the festive sales in October last year, analysts saw discounting was down, but sales were still healthy. claimed it had captured over 70 per cent of all e-commerce sales during that particular five-day period and said it was confident of maintaining its market share in 2018.

E-commerce in India have learnt their lesson of burning cash on discounts to get more customers. In 2016, when a funding drought hit and Snapdeal, customers simply flocked to Amazon, which kept the taps open. The lesson was that customers bought through discounts aren’t loyal

While in the past has complained of tapping its global balance sheet to undercut the cost of products in order to steal customers from it, the company with a claimed cash reserve of $4 billion has given up on that argument now. While one outcome of such a large fundraising could have been blasting the market with discounts, that has not happened.

Experts say e-commerce in India have learnt their lesson of burning cash on discounts to get more customers. In 2016, when a funding drought hit and Snapdeal, customers simply flocked to Amazon, which kept the taps open. The lesson was that customers bought through discounts aren’t loyal. Now, it is looking to bring back its loyalty programme and enter the grocery business that will have repeat transactions from customers and this could increase its spend.

has been keeping its burn rate low with lot of its initiatives. However this could increase when it expands into grocery where it has lower margins and higher “delivery costs,” says Anil Kumar, founder and of RedSeer Consulting, a Bengaluru researcher of new age

continues to aggressively invest in its India unit. In 2017 alone the company pumped in $1 billion into Seller Services, it’s largest unit in the country, according to filings made by the company with the While continues to play the price game, it says a majority of its investments here are going into building infrastructure and programmes such as Prime.

In an interview with Business Standard last year, Amit Agarwal, the country manager for in India, said that since US giant entered the country, half its investments have been routed towards growing infrastructure.

First Published: Sat, January 06 2018. 22:29 IST
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